New figures for Quarter 3 show that more new licensees have been registered than have ceased operation, reversing the situation from Quarter 2 which saw, for the first-time licensee shutdowns outnumber new licensees for the first time in almost 5 years. Our analysis also shows that this year, licensees less than 3 years old are ceasing operations at a higher rate than the historical average.
We previously reported that Q2 of 2019 saw the number of licensees closing down surpass newly registered licensees. It appears that this situation was an anomaly, perhaps related to the end of the financial year. Our chart shows the situation has returned to its historical norm in that new licensee registrations for Q3 outnumbered discontinued licensees.
Most industry commentary has focussed on the exit from wealth of large institutions and their aligned licensees and rightly so, as this obviously effects a large proportion of advisers. Adviser Ratings has noted the continued trend of fragmentation of the industry and the increasing number of licensees that can potentially house large numbers of advisers no longer authorised by the exiting licensees.
However, advisers moving to smaller licensees should note that of the 147 licensees that have actually been discontinued since Jan 1 this year the vast majority were privately help licensees. Only 6 licensees that were owned or aligned have closed so far this year and half of those were Westpac (including Magnitude and Securitor).
That most licensee closures are privately owned licensees is perhaps not surprising given that 2057 (93%) of licensees that operate in Australia authorise 20 or less advisers. There does however seem to be an uptick in newer licensees closing down. We have also done some analysis on the “shut down age” of licensees for those closed this year and compared them to the historical average.
Historically, in the last five years, 40% of licensee shutdowns have been licensees that are less than 3 years old. This year, that figure has risen to over 50%. Interestingly, the comparative figures for closures of licensee less than a year old is not what we might expect, historically being twice as high (12.2% of all Licensee shutdowns) than it is for this year (only 6.1%).
The difference could indicate that those seeking new licensees’ authorisations are more committed immediately after their establishment but find continuation of their licensee too onerous after a few years. Historically 14.8% of closing licensees are between 2-3 years old, this year, that figure is almost doubled (28.6%).
With continuing fragmentation and this analysis showing the continued dynamism of the licensee market, these figures offer a timely reminder to all advisers to do their due diligence on prospective licensees if they are going to be looking for a new home.